Below are some terms you are likely to encounter while shopping for insurance coverage.
The Premium is the amount paid by the insured (policyholder) to the insurer (the insurance company) for the policy. The premium amount typically depends on the insured’s gender, age, state of health, coverage amount, and relevant track record (for example, pre-existing medical conditions, prior accidents, or speeding tickets). Premiums may be paid monthly or annually, and sometimes quarterly or semi-annually. You may be charged extra if you choose not to pay the entire premium upfront each year. If a premium payment is missed, the policy may lapse, which could mean losing coverage.
The benefit is the amount(s) payable by the insurance company to the insured or a beneficiary when the insured or beneficiary becomes eligible for payment as a consequence of a qualifying financial or property loss, physical injury, disease, or death.
The deductible is the dollar amount that must be paid by the insured, before the insurer begins to pay benefit(s). Usually, by electing higher deductible amounts you can reduce your premiums. This is because you’re accepting more of the risk, and the insurer rewards you by reducing your premiums.
A pre-existing condition is a health or medical issue an applicant has prior to applying for insurance. Insurers may deem applicants with pre-existing conditions uninsurable and reject them outright, they may provide limited coverage excluding specific ailments related to the pre-existing condition, or they may enforce a waiting period before coverage begins.
Exclusions from Coverage
Insurers may tailor policies to delay or exclude (refuse) coverage for a variety of reasons. Exclusions may arise due to a specific pre-existing condition such as cancer (in the case of life insurance), flood or earthquake damage (in the case of property insurance), or spine coverage (in the case of disability insurance). In the latter case, a person with a prior back injury may be able to obtain disability insurance, but the policy may specifically exclude (not cover) any spine-related ailments.
The exclusion period (also known as a pre-existing condition waiting period) is the period of time that an insurer can delay coverage of a pre-existing condition.
The elimination period (or waiting period) is the period of time which must go by after filing a claim and before a policyholder can collect insurance benefits.
An insurance illustration provides a written summary of premiums, benefits, and other pertinent facts regarding the policy. For example, for a permanent life insurance policy, the illustration may show dividends, cash value, and death benefits for each year the policy is expected to be in force. Some of the items shown on an illustration may depend on assumptions made by the insurance company. It’s important to distinguish which of the displayed amounts are guaranteed, and which are non-guaranteed forecasts. As noted elsewhere, insurance company guarantees don’t mean a total absence of risk. If the insurance company goes bankrupt its guarantees may not be honored.
The benefit period is the period of time (in days, months, or years) over which benefits are paid to the policyholder, dependents, or beneficiaries.
Non-Cancellable and Guaranteed Renewable
Combined, these terms guarantee that if you continue to pay your premiums on time, the insurance company cannot cancel your coverage, raise your premiums or change the terms of your policy without your consent. If a policy is only guaranteed renewable, as long as you make your payments on time it can’t be cancelled and its provisions can’t be changed, but premiums can be increased.
The term is the period of time over which the policy is in effect. For example, a 10-year Term Life Insurance policy provides coverage for 10 years.
Riders are additional features or benefits that can be added to a basic insurance policy. While some riders are free, most require additional payment.
For life and disability policies, insurers may require that you submit to medical testing. Blood and urine tests are fairly standard requirements, along with documentation of your health history. If any ailment or condition is discovered during such tests, higher premiums may be required to secure coverage, or you may be deemed uninsurable.
A desirable feature in most policies is the option to increase coverage in future without having to submit to additional medical testing. This is an important consideration and one you should explore in advance with your properly licensed insurance agent.
Insurers will try to get their hands on any bit of information that refines their estimates of your likelihood of becoming disabled or dying prematurely. This potentially includes genetic test results. Accordingly, it may make sense to secure insurance coverage before undertaking genetic testing.